Tax Rates & Incentives
Taxes on Corporate Income
Companies resident in India are taxed on their worldwide income arising from all sources in accordance with the provisions of the Income Tax Act. Non-resident corporations are essentially taxed on the income earned from a business connection in India or from other Indian sources. A corporation is deemed to be resident in India if it is incorporated in India or if it's control and management is situated entirely in India.
The current rates of Corporate tax on profits and other incomes generated by a company are as follows:
- Domestic companies are subject to tax at a basic rate of 35% and a 2.5% surcharge.
- Foreign companies have a basic tax rate of 40% and a 2.5% surcharge.
- An education cess at the rate of 2% on the tax payable is also charged.
- A Wealth tax at the rate of 1% is charged, if the net wealth exceeds Rs.1.5 million.
- A dividend distribution tax at the rate of 12.5% (propose to raise to 15% as per Union Budget 2007-08) is charged on Domestic companies.
- A Minimum Alternative Tax at 7.5% (plus surcharge and education cess) of book profit is charged, if the tax payable as per regular tax provisions is less than 7.5% of its book profits.
Sales tax is levied on the sale of movable goods. Most of the Indian States have replaced Sales tax with Value Added Tax (VAT) from 1 April 2005. VAT is imposed on goods only and not services and it has replaced sales tax. Other indirect taxes such as excise duty, service tax etc., are not replaced by VAT. VAT is implemented at the State level by State Governments. VAT is applied on each stage of sale with a mechanism of credit for the input VAT paid. There are four slabs of VAT:-
- 0% for essential commodities.
- 1% on bullion and precious stones.
- 4% on industrial inputs and capital goods and items of mass consumption.
- All other items 12.5%.
- Petroleum products, tobacco, liquor etc., attract higher VAT rates that vary from State to State.
VAT Schedule (Click here to obtain the Schedule of items under VAT)
VAT Rates (Click here to obtain the VAT rates for various commodities)
Municipal / Local Taxes
Octroi / Entry tax: - Some municipal jurisdictions levy octroi/entry tax on entry of goods.
Government of India provides tax incentives for:-
- Corporate profit.
- Accelerated depreciation allowance.
- Deductibility of certain expenses subject to certain conditions.
These tax incentives are, subject to specified conditions, available for new investment in;
- Power distribution.
- Certain telecom services.
- Undertakings developing or operating Industrial Parks or Special Economic Zones.
- Production or refining of mineral oil.
- Companies carrying on R & D.
- Developing housing projects.
- Undertakings in certain hill states.
- Handling of food grains.
- Food processing.
- Rural hospitals.